Archive for the ‘Krugman’s Blog’ Category

There was one post yesterday, “Why Do You Care How Much Other People Work? Revisited:”

Greg Leiserson has an interesting post on assessing tax reform, in which he argues that distribution tables — showing the direct gains and losses from a tax change — properly measure welfare gains, and don’t need to be revised to consider the induced effects on labor supply, effort etc.

This caught my eye because I made a similar point three years ago with regard to projections of labor supply reduction from Obamacare.

The point in each case is that while changes in taxes or transfers may induce changes in how much people work, when you assess these changes you have to bear in mind that, to a first approximation, workers are paid their marginal product. This means that if increased transfers induce some people to work less, it also causes them to earn less, so that the rest of society isn’t any worse off; if lower taxes induce high earners to work more, it also means that they’re paid more, so that the rest of society doesn’t reap any of the gains.

This is also, by the way, the logic behind the Diamond-Saez proposition that the optimal top tax rate is the one that maximizes revenue: aside from the taxes they pay, increased effort by the very rich to a first approximation makes no difference to everyone else, because the increase in output is fully captured by higher top incomes.

All of this gets obscured by talk about economic growth. Reminder: workers care about their welfare, not what happens to GDP. Making the rich richer without trickle down does the rest of us no good.

There was one post yesterday, “The Political Failure of Trickle-Down Economics:”

Tomorrow’s column is in part about the political failure of Trumpcare, which was — despite all those populist noises during the campaign — a case of trickle-down economics on steroids: huge benefit cuts for lower- and middle-income families, to provide huge tax cuts for a tiny minority.

But was that failure really so exceptional?

We tend to think of the period since Reagan’s election as a conservative era; even though Republicans controlled the White House only a few years more than Democrats, there were lots of centrist Dems willing to cooperate with R agendas, versus almost no cooperation when Ds held the WH. And one tends to think of the period as a whole as involving tax-and-transfer policy tilting to the right.

Yet that’s not something that jumps out from the numbers. Think about taxes on the top 1%. Yes, Reagan and GW Bush cut them; but both Clinton and Obama raised them. The CBO estimates have some funny fluctuations, driven I think by capital gains: big capital gains raise tax receipts without a corresponding rise in measured income, as I understand it. Still, the overall picture is that at the end of the Obama years taxation of the rich was pretty much back where it was pre-Reagan:

Meanwhile, there were harsh cuts to some social programs — Clinton ended welfare as we knew it — but expansions of others. One simple metric: Medicaid enrollees as a percent of the nonelderly population, via the CDC:

I’m not saying that the “nation of takers” stuff, a vast population living off the dole and voting to tax their betters, is at all right. But it is true that a welfare state supported by progressive taxation has been much more robust than the year-by-year political narrative might lead you to think.

But in that case, why the incredible surge in inequality? Good question, and not that easy to answer. But there is, I think, a good case to be made that things like the collapse of unions and financial deregulation mattered a lot more than the taxing and spending issues we spend so much time talking about.

There was one post yesterday, “How Bad Will It Be If We Hit The Debt Ceiling?”:

The odds of a self-inflicted US debt crisis now look pretty good: hard-line Republicans are eager to hold the economy hostage, Democrats are in no mood to make concessions, and Trump is both spiteful and ignorant. So it looks fairly likely that by October or so there will come a day when the U.S. government stops paying some of its bills, including interest on debt.

How bad will that be? The truth is that we don’t know; but it may be helpful to talk about *why* we don’t know.

Until now, US debt has played a special role in the world economy, because it is — or was — the ultimate safe asset, the thing people can use to secure transactions with no questions about it retaining its value. In a way, the dollar is to other moneys as money is to other assets, and US dollar debt is the form in which dollars are held with ultimate safety.

Taking away that role could be very nasty. One prominent interpretation of the 2008 financial crisis is that it was a “safe asset shortage“: when people realized that those AAA securities engineered from subprime loans weren’t the real thing, they scrambled into an inadequate supply of trill safe stuff. Deprive them of dollar debts as safe assets, and terrible things could happen.

The question then becomes whether an interruption in payments would really knock out the special role of U.S. debt.

Suppose that everyone expected normal payments to resume, with back interest, in a couple of weeks. In that case, even a slight discount on, say, Treasury bills would make them a very good investment — so speculators would basically step in and support the value of U.S. debt despite temporary default. In that case default might not be that big a deal.

The big problem would come if investors see the default as more than a temporary glitch — if they see it as a sign of enduring, critical dysfunction in American governance. In that case they wouldn’t necessarily step in to buy our debt, and their confidence in the whole economic edifice would take a severe hit.

But of course that’s implausible. To see default by a basically solvent government as more than a mere glitch, you’d have to believe that we have an unbridgeable partisan divide, with one party largely dominated by extremists, and with a president who is ignorant, incompetent, and vindictive.

Every once in a while people make the point that much of what eventually became Obamacare came from, of all places, the Heritage Foundation – that is, the ACA is basically what conservatives used to advocate on health care. So I recently reread Stuart Butler’s 1989 Heritage Foundation lecture, “Assuring Affordable Health Care For All Americans” – hmm, where have I seen similar language? — to see how true that is; and the answer is, it really is pretty much true.

First of all, this wasn’t just one guy at Heritage writing: Butler referred to his proposal as “the Heritage plan”, referring to a monograph that lays it out and does indeed present it as the institution’s policy, not just his opinion.

Second, while the Heritage plan wasn’t exactly the same as ObamaRomneycare, it was pretty close. Like the ACA, it imposed a mandate requiring that everyone buy an acceptable level of coverage. Also like the ACA, it proposed subsidies to make sure that everyone could in fact afford that coverage. That’s two legs of the three-legged stool.

Where the plan differed was in the handling of pre-existing conditions. Butler opposed community rating, viewing it as an indirect tax on the healthy – but called instead for big subsidized high-risk pools to cover those private insurers would otherwise shun.

I have real doubts about whether this would have been workable. But two things about it are notable. (1) The Heritage plan would have required bigger, not smaller, government spending; that is, on-budget outlays would have been larger. (2) The piece of the ACA Heritage didn’t want was the part that’s actually most popular with the public.

Overall, what’s striking about the Heritage plan is that it’s not notably more conservative than what Obama actually implemented: a bit less regulation, a substantial amount of additional spending. If Obamacare is an extreme leftist measure, as so many Republicans claim, the Heritage Foundation in the 1980s was a leftist institution.

Like many people, I have a sick sense of anger over what just happened in the Senate, which just voted to proceed on a health care bill without any information on what will be in the bill. There’s still hope that in the next few hours, moderates who just caved in will balk at the horrible things they’re being asked to vote for. And I do mean hours: there will be no time for reflection or serious debate.

But nobody should have any confidence that they will. And I think we can almost take it for granted that John McCain will first vote for something terrible, then give a grandstanding speech about making our politics better.

The important thing to realize is WHY the Senate is doing this — rushing to pass legislation that will have a vast impact on American lives, the economy, and more without a single hearing, without time for a proper analysis of the bill, and with crucial votes taken on behalf of legislation yet to be determined. It’s not some arbitrary failure of procedure: it’s a coverup.

The fact is that Republicans have no good ideas on health; everything they want to do will make huge numbers of people worse off, to the benefit of a wealthy few. And they know this. They know that the campaign against Obamacare was based on lies from the beginning, that all their complaints about things like high deductibles were hypocritical. They know that what they’re about to do is terrible. But they’re trying to do it anyway — and the only way they have a chance is by breaking every rule of good governance, by making the process so rushed and secretive that nobody has a chance to say “Wait a minute– what are we doing?”

At a deep level McConnell’s determination to pass a health bill by breaking all norms is quite similar to Trump’s determination to shut down an investigation into his own corruption and possible collusion. Both men are trying to cover up what they know would outrage voters if they knew about it, and they don’t care what rules get broken along the way.

And the Senators who caved on health today are pretty much the same people who are enabling Trump’s abuse of his office. The moral rot in the Republican party runs wide as well as deep. All we need to save America is a few good men — but apparently all we have are two decent women. And that’s not enough.

Right now, there are two huge crises in American politics, but one is clearly bigger than the other. Yet looking at my recent columns, and to a large extent my blogging and tweeting, I’ve been focusing mainly on the lesser crisis. A few thoughts about why.

Clearly the most important thing happening in and to America right now is the constitutional crisis. Not potential crisis: it’s already here. The president’s inner circle is under investigation for possible collusion with a hostile foreign power, collusion that may have put him in office; he himself, whether or not he’s currently a direct target of that investigation, is clearly suspect. Yet he has already made clear his determination to block any investigation that gets too close.

This is way worse than Nixon – yet all indications are that the moral rot of the Republican Party now runs so deep that the constitutional answer to a rogue president is null and void. This is an existential threat to the republic, and it can be hard to focus on anything else.

Yet if Trump-Putin-treason weren’t in the news, we’d all be focused on health care, where Republicans are still trying to ram through a disgusting bill, inflicting immense harm, under cover of secrecy and lies. In the process they are bringing conspiracy theorizing to the heart of politics: every attempt at objective analysis, every statement of plain facts, just shows that you’re an enemy.

First, personal comparative advantage. I’m not a national security or legal expert. That won’t stop me from weighing in when I think other pundits are, for whatever reason, failing to see the obvious – as was the case long ago when I stuck my neck out to argue that we were being lied into the Iraq war. But Trump-Putin-treason is in fact getting plenty of attention.

Meanwhile, health economics is close enough to my home areas of expertise that I think I know what I’m talking about (and who to consult); so it’s an area where I think I can still add significant value to the discussion.

Equally important, health care is an area where punditry can make a difference, either by helping to stop the Republican bum’s rush or by helping to ensure that those responsible for destroying health care pay the appropriate price. For now, by contrast, Trump-Putin-treason is largely in the hands of Robert Mueller and Trump himself.

Investigative reporting can help move the situation along, and it will be all hands on deck if and when Trump fires Mueller (which seems more likely than not). But for now, it seems to me that I personally best serve the public interest by focusing on the lesser but still great evil.

There was one post yesterday, “The Healthcare Debacle: The Roles of Ignorance and Evil:”

The important things to understand about the Republican health care bill are that it is (a) a cruel assault on the health and financial security of tens of millions of Americans (b) being sold via a campaign of lies that is unprecedented in US politics. Defeating this bill, and/or making its supporters pay a massive political price, is priority #1.

But there are a number of secondary questions, involving how Republicans got to this point. Some of these are big and long-term: how did a whole party succumb to such moral rot? Others are more tactical: how did they get into this immediate political mess?

So I was struck by today’s report in Politico suggesting that leading Republicans — in Congress as well as the Trump administration — thought repealing Obamacare would be quick and easy:

The longer Republican efforts to repeal Obamacare flounder, the clearer it becomes that President Donald Trump’s team and many in Congress dramatically underestimated the challenge of rolling back former President Barack Obama’s signature achievement.

The Trump transition team and other Republican leaders presumed that Congress would scrap Obamacare by President’s Day weekend in late February, according to three former Republican congressional aides and two current ones familiar with the administration’s efforts.

How could they have believed this? Anyone who paid the least attention to health issues knew that the ACA had dramatically reduced the number of uninsured, and that rolling it back would have devastating effects on many people — including many working-class whites. Never mind the morality: It should have been obvious that the political cost of repeal would be very high.

But apparently nobody with influence in the GOP saw the obvious. Why?

The answer, I think, is that they were living in a bubble created out of their own ignorance and cynicism.

They had spent years attacking Obamacare for things they had no intention of fixing — in fact, had every intention of making worse — like high deductibles. They appear never to have considered what would happen if they were called upon to deliver on their promises to make these things better.

They also appear to have been so wrapped up in their own propaganda that they never noticed the good Obamacare was doing. You saw that when the Indiana GOP asked for “Obamacare horror stories” and were flooded with testimonials instead.

When it comes to health care, there are lies, damned lies, and CBO-bashing.

Republicans are deploying all three strategies, with Mike Pence’s vile lie about the disabled – the utterly false claim that Medicaid expansion has actually hurt those most in need of help – drawing lots of justified outrage. But the really big push over the next couple of days will be the attempt to trash CBO estimates that are almost sure to show massive losses, even if the CBO is somehow prevented from considering the Cruz amendment.

One answer to this stuff is to notice that everyone, and I mean everyone, who knows something about insurance markets is declaring the same thing: that this proposed bill would be a disaster. We’ve got the insurance industry declaring it “simply unworkable”; the American Academy of Actuaries saying effectively the same thing; AARP up in arms; the Urban Institute forecasting disaster; and more.

But, say the usual suspects, CBO got the effects of the ACA all wrong. Actually, it didn’t. Yes, it overestimated the number of people who would sign up for the exchanges. But this was largely because it overestimated the number of employers who would drop coverage and send their workers to the exchanges. Overall, its estimates of coverage gains and premiums weren’t that far off, especially when you consider that this was a big leap into the unknown: aside from limited experience in Massachusetts, we didn’t have very good evidence on how an ACA-type system would work.

Which brings me to a point I haven’t seen emphasized: whereas the creation of the ACA was a leap into the unknown, Trumpcare – or maybe we should call it Cruzcare – is a leap into the known. Before the ACA, most states allowed insurers to discriminate based on medical history. Many also restricted access to Medicaid as much as they could. So we have a very good idea what health care in America would look like if the BCRA passes: it would look like health care in unregulated, low-aid states pre-ACA.

Or to not put too fine a point on it, it would look like health care in Texas circa 2010, with 26 percent of the nonelderly population uninsured.

So the burden of proof should lie completely with anyone who claims that this bill would NOT cause drastic coverage losses. It would establish a system very much like that which existed in those parts of America in which vast numbers of people lacked coverage in the past; why would this time be different?

The title of this post comes from a once-famous book about the senior British officials who, it turned out, spied for Stalin. I found myself thinking about that book’s title while watching the conservative movement react to news that yes, the Trump campaign was in contact with Russian agents, and was willing, indeed eager, to engage in collusion.

With very few exceptions, this reaction has taken two forms: defining collusion down, or celebrating it. Some are arguing that saying “I love it!” when Russian agents offer damaging information about your opponent doesn’t count as collusion unless it’s sustained (which it might have been, by the way – we just don’t know yet), or unless it determined the election outcome. By that standard, of course, Kim Philby did nothing wrong, since the West ended up winning the Cold War.

Others are basically saying that cooperating with a foreign dictator is no big deal if it protects us against real threats, like universal health care.

The important thing to notice is that almost the entire conservative movement has bought into one or both of these arguments. After all the flag-waving, all the attacks on Democrats’ patriotism, essentially the whole GOP turns out to be OK with the moral equivalent of treason if it benefits their side in domestic politics. Which raises the question: what happened to these people?

One answer might be that right-wing ideology, the commitment to tax cuts for the rich and pain for the poor, has such a grip on conservative minds that nothing else matters. But while this is true for some apparatchiks, my guess is that it’s not nearly as true for many – certainly not for the Republican base in the general public. So why has partisanship become so extreme that it trumps patriotism?

Well, I have a thought inspired by something my CUNY colleague Branko Milanovic wrote recently about civil wars. Branko – who knows something about Yugoslavia! – argues against the view that civil wars are caused by deep divisions between populations who don’t know each other. The causation, he argues, goes the other way: when a civil war begins for whatever reason, that’s when the lines between the groups are drawn, and what may have been minor, fairly benign differences become irreconcilable gulfs.

My suggestion is that something like this happened to America, minus the mass bloodshed (so far, anyway.)

The radicalization of the GOP began as a top-down affair, driven by big-money interests that financed campaigns and think tanks, pushing the party to the right. But to win elections, the forces engaged in this push cynically appealed to darker impulses – racism first and foremost, but also culture war, anti-intellectualism, and so on. To make this appeal, they created a media establishment – Fox News, talk radio, and so on – which drew in many working-class whites. This meant that a large segment of the population was no longer hearing the same news – basically not experiencing the same account of reality – as the rest of us. So what had been real but not extreme differences became extreme differences in political outlook.

And political figures either adapted or were pushed out. There once were Republicans who would have reacted with horror to Trump’s embrace of Putin, but they’ve left the scene, or are no longer considered Republicans.

This has troubling implications for both the short and the long run. In the short run, it probably means that no matter how bad the Trump revelations get, most Republicans, both in the base and in Congress, will stick with him – because taking him down would be a victory for liberals, who are worse than anything.

In the long run, it makes you wonder whether and how we can get the country we used to be back. As Branko says, there was a time when Serbs and Croats seemed to get along fairly well, indeed intermarrying at a high rate. But could anyone now put Yugoslavia back together? At this rate, we’ll soon be asking the same question about America.

While we wait to see exactly what’s in the latest version of the Senate health bill, a reminder: throughout the whole campaign against Obamacare, Republicans have been lying about their intentions.

Believe it or not, conservatives actually do have a more or less coherent vision of health care. It’s basically pure Ayn Rand: if you’re sick or poor, you’re on your own, and those who are more fortunate have no obligation to help. In fact, it’s immoral to demand that they help.

Specifically:

1.Health care, even the most essential care, is a privilege, not a right. If you can’t get insurance because you have a preexisting condition, because your income isn’t high enough, or both, too bad.

2.People who manage to get insurance through government aid, whether Medicaid, subsidies, or regulation and mandates that force healthy people to buy into a common risk pool, are “takers” exploiting the wealth creators, aka the rich.

3.Even for those who have insurance, it covers too much. Deductibles and copays should be much higher, to give people “skin in the game” and make them cost-conscious (even if they’re, um, unconscious.)

4.All of this applies to seniors as well as younger people. Medicare as we know it should be abolished, replaced with a voucher system that can be used to help pay for private policies – and funding will be steadily cut below currently projected levels, pushing people into high-deductible-and-copay private policies.

This is a coherent doctrine; it’s what conservative health care “experts” say when they aren’t running for public office, or closely connected to anyone who is. I think it’s a terrible doctrine – both cruel and wrong in practice, because buying health care isn’t and can’t be like buying furniture. Still, if Republicans had run on this platform and won, we’d have to admit that the public agrees.

But think of how Republicans have actually run against Obamacare. They’ve lambasted the law for not covering everyone, even though their fundamental philosophy is NOT to cover everyone, or accept any responsibility for the uninsured. They’ve denied that their massive cuts to Medicaid are actually cuts, pretending to care about the people they not-so-privately consider moochers. They’ve denounced Obamacare policies for having excessively high deductibles, when higher deductibles are at the core of their ideas about cost control. And they’ve accused Obamacare of raiding Medicare, a program they’ve been trying to kill since 1995.

In other words, their whole political strategy has been based on lies – not shading the truth, not spinning, but pretending to want exactly the opposite of what they actually want.

And this strategy was wildly successful, right up to the moment when Republicans finally got a chance to put their money – or actually your money – where their mouths were. The trouble they’re having therefore has nothing to do with tactics, or for that matter with Trump. It’s what happens when many years of complete fraudulence come up against reality.